Keystone Drill Services, Inc. v. Davey Kent, Inc.

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

KEYSTONE DRILL SERVICES, INC., CASE NO. 5:22-CV-00291

Plaintiff,

vs. MAGISTRATE JUDGE AMANDA M. KNAPP

DAVEY KENT, INC., et al.,

MEMORANDUM OPINION & ORDER

Defendants.

Before the Court is the Defendant J. Thomas Myers II’s (“Defendant” or “Myers”)

Motion for Summary Judgment. (ECF Doc. 58 (“Motion”).) The Motion is briefed and ripe for

decision. (ECF Docs. 59, 62.) The parties have consented to the magistrate judge pursuant to 28

U.S.C. § 636(c) and Fed. R. Civ. P. 73. (ECF Doc. 30.) For the reasons set forth below, the

Court DENIES Myers’s Motion (ECF Doc. 58).

I. Background

A. Procedural Background

Plaintiff Keystone Drill Services, Inc. (“Plaintiff” or “Keystone”) filed its Complaint

against Defendants Davey Kent, Inc. (“Davey Kent”) and Myers on January 21, 2021, in the

Common Pleas Court of Somerset County Pennsylvania. (ECF Doc. 1-3.) In its Complaint,

Keystone asserts claims for breach of factoring agreement and guaranty (Count Four) and fraud

(Count Six) against Davey Kent and Myers, in addition to claims for breach of contract, unjust

enrichment, conversion, and constructive trust against Davey Kent alone (Counts One, Two,

Three, and Five), all of the claims arising from Keystone’s purchase of drill rigs and component

parts from Davey Kent. (Id.) That action was removed to the United States District Court

Western District of Pennsylvania on March 1, 2021 (ECF Doc. 1) and subsequently transferred

to this Court on February 22, 2022 (ECF Docs. 17, 18). In addition to ordering the transfer of

the action to this Court, the Western District of Pennsylvania stayed Keystone’s claims against

Davey Kent due to its “Notice of Bankruptcy Filing,” but held that Keystone could continue to

prosecute its claims against Myers individually despite the bankruptcy stay. (ECF Doc. 17, p. 3.)

Following transfer to this Court, the parties consented to the undersigned’s jurisdiction.

(ECF Doc. 30.) Plaintiff filed an Amended Complaint on October 19, 2022, to clarify

allegations regarding Keystone’s legal structure. (ECF Docs. 36, 37.) The legal claims asserted

in the Amended Complaint were unchanged. (Compare ECF Doc. 37 with ECF Doc. 1-3, see

also ECF Doc. 59, p. 2, n. 1.) The parties proceeded with discovery and participated in an

unsuccessful mediation. (ECF Doc. 54.) Following the mediation, Plaintiff’s request for

additional time to conduct discovery was granted and Myers’s request to file a motion for

summary judgment at the conclusion of discovery was granted.1 (ECF Doc. 55.) Myers filed the

pending motion for summary judgment on June 30, 2023. (ECF Doc. 58.)

B. Factual Background

1. Myers and Davey Kent

Myers is the owner and President of Davey Kent, a small business that employs less than

two dozen individuals. (ECF Doc. 58-1 (“Myers Aff.”), p. 1, ¶ 2; id. at p. 2, ¶ 6.) Davey Kent

manufactures large drilling rigs for use in commercial construction, oil drilling, and related

1 In light of the parties’ interest in engaging in mediation, Myers’s first motion for summary judgment was denied

without prejudice subject to the right to refile should the case not settle. (ECF Doc. 53.)

industries (Id. at p. 1, ¶ 3) and is run by Myers and his son, David Myers (id. at p. 2, ¶ 6). David

Myers is the Vice President and an employee of Davey Kent, not an owner. (ECF Doc. 60-1

(“Myers Depo. Vol. I”), Page ID # 379-80, pp. 27:20-28:3.)2

Drilling machines have historically been made to order in the United States, and can

therefore take weeks, if not months, to manufacture, while large European manufacturers build

“prefabricated fleets of less-customizable machines for near-immediate purchase and

installation.” (Myers Aff., p. 2, ¶¶ 8-9.) Following the 2008 recession, European manufacturers

began shipping those prefabricated, less expensive machines to the United States, causing a shift

in the drilling machine industry. (Id. at p. 2, ¶¶ 7, 10-11; Myers Depo. Vol. I, Page ID # 413-15,

pp. 61:15-63:9.) That shift complicated Dave Kent’s “increasingly precarious position,” so that

increasing supply chain costs and delays began to negatively impact Davey Kent’s cash flow.

(Myers Aff., p. 2, ¶¶ 11-12.)

2. Keystone

Keystone’s President is Tom Walker (“Walker”) and its CEO is Scott Slater (Slater”).

(ECF Doc. 59-2 (“Slater Aff.”), p. 2, ¶¶ 1, 4.) Keystone is a company that manufactures custom-

engineered drilling products for industrial uses and acts as a sales representative for drilling

products produced by drill manufacturers around the world. (Id. at p. 2, ¶ 2.)

3. Distributorship Agreement Between Davey Kent and Keystone

In or around 2017, Slater connected with David Myers via LinkedIn, with the hope that

“Davey Kent could manufacturer drilling equipment which Keystone would pay for and then sell

for a profit to its customers.” (Slater Aff., p. 2, ¶ 3.) Myers agrees that Slater approached David

Myers in 2017 to discuss “entering into a distributorship agreement where Keystone would

2 The listed page numbers for the Myers deposition refer to the page numbers on the transcript pages, not the pages

listed electronically on ECF Doc. 60-1; Page ID numbers are included to reference the pages in the electronic file.

establish an available fleet of Davey Kent machines and parts for sale and rental in the industry,

market the availability of those machines, and collect a fee for itself.” (Myers Aff., p. 3, ¶ 13.)

Walker and Slater met with Myers and his son David at Davey Kent’s facility on July 6, 2017, to

discuss a potential business relationship between Davey Kent and Keystone. (Slater Aff., p. 2, ¶

4; see also Myers Aff., p. 3, ¶ 14.) Another meeting took place on August 8, 2017, at Keystone’s

facility; Myers and his son David were present on behalf of Davey Kent, and Walker, Slater, and

Steve Means were present on behalf of Keystone. (Slater Aff., p. 2, ¶ 4.)

During the two meetings, Keystone expressed interest in purchasing two types of drilling

machines designed and manufactured by Davey Kent, a smaller 525 machine and a larger 725

machine. (Slater Aff., p. 2, ¶ 5.) Once the machines were delivered, Keystone intended to sell

them to customers within a defined territory negotiated by the parties. (Id.) Based on those

discussions, Keystone and Davey Kent executed a Distributorship Agreement in August 2017.

(Id. at p. 3, ¶ 18; Slater Aff., p. 3, ¶ 6; ECF Doc. 37-1.) The agreement was signed by David

Myers on behalf of Davey Kent and by Scott Slater on behalf of Keystone. (Myers Depo. Vol. I,

Page ID # 427, p. 75:6-12; ECF Doc. 37-1, p. 6.) Myers approved the agreement before it was

signed by David Myers. (Myers Depo. Vol. I, Page ID # 427-28, pp. 75:22-76:7.)

The Distributorship Agreement stated that Keystone would “work to build an appropriate

fleet to be made available at all times for sale or rent in the contractual area.” (ECF Doc. 37-1, p.

3 (Article 3(b)).) The parties agreed that the fleet size would start at two machines, but expected

that the fleet would grow much larger. (Id.; Slater Aff., p. 3, ¶ 6.) During the contract

discussions, Myers portrayed Davey Kent as a small company that had to build machines on an

“order for order” basis; that is why a decision was made to start with only two machines. (Slater

Aff., p. 7, ¶ 7.) Nevertheless, Slater states that Myers represented multiple times during the

contract discussions that Davey Kent had the personnel and money to fulfill Keystone’s orders

(id.), and “did not disclose to Keystone that he and Davey Kent were in financial difficulty” (id.

at p. 3, ¶ 9).

Keystone ordered its first 725 and 525 machines in August 2017. (Myers Aff., p. 4, ¶

24.) The purchase order for the first 725 machine was executed on August 17, 2017, in the

amount of $439,819.75. (Slater Aff., p. 3, ¶ 8.) The purchase order for the first 525 machine

was executed on August 18, 2017, in the amount of $206,261.00. (Id.) Keystone fully paid for

these two machines. (Id.) In September 2017, Keystone ordered a second 525 machine at the

cost of $214,650.50, and Keystone paid $107,325.26 towards that machine. (Id.) According to

Slater, “Myers said it would take approximately two to three months to build a 525 machine and

four months and likely longer to build a 725 machine.” (Id. at p. 3, ¶ 7.) Keystone needed

Davey Kent to “timely manufacture and deliver the drills as it needed the machines to sell to

recoup its purchase costs and to generate profit,” and therefore “expected Davey Kent would

timely build and deliver those drills and others as Myers had promised.” (Id. at p. 3, ¶¶ 7-8.)

After entering into the Distribution Agreement, Davey Kent started to explore additional

ways to obtain “upfront capital,” believing additional capital would permit it to “order more parts

in advance, shortening vendor supply-chain delays.” (Myers Aff., p. 5, ¶¶ 30, 31.) Alternatives

for obtaining additional capital that were considered by Davey Kent included “leasing machines

through Bank of the Internet and the use of factoring agreements.” (Id.)

4. Factoring Agreement

A few days after the Distribution Agreement was signed, Myers forwarded a copy of the

agreement, invoices for the first two machine purchases, and a screenshot showing Keystone’s

initial 30% deposits toward those machines to Michael Sichenzia (“Sichenzia”). (Myers Depo.

Vol. I, Page ID # 437-42, pp. 85:9-90:15; ECF Doc. 60-1, pp. 277-98 (Exs. 8A-8E).)

Sichenzia—a consultant for Myers on personal matters who was previously convicted of fraud-

related charges—used those materials to connect Davey Kent with Durham Commercial Capital,

a factoring company. (Myers Depo. Vol. I, Page ID # 391-400, pp. 39:17-48:5, 88:9-89:5.)

Davey Kent’s purpose in pursuing factoring was to “accelerate cash into the company to help [it]

perform on [its] commitments to Keystone” (id. at Page ID 437-38, pp. 85:24-86:6), and to “[t]ry

to move things faster” by “powering against the orders and the equipment that were in process”

(id. at Page ID # 441, p. 89:16-22).

Myers first got to know Sichenzia “just prior to discussions with Keystone” and knew

that he was a felon and had spent some time in jail. (Myers Depo. Vol. I, Page ID # 391-92, pp;

39:20-40:2.) Myers did not tell Keystone that he was being advised by a convicted felon. (Slater

Aff., p. 3, ¶ 9.) Slater states that Keystone would not have signed the contract, placed the

purchase orders, or otherwise done business with Myers or Davey Kent if Keystone knew

“Myers and Davey Kent were in financial difficulty and that Myers was being advised by

Sichenzia.” (Id. at p. 4, ¶ 9.)

On September 21, 2017, Davey Kent and Durham Commercial Capital Corp. (“Durham”)

signed a Nonrecourse Receivables Purchase Contract and Security Agreement (“Factoring

Agreement”), with a personal guaranty signed by Myers (“Guaranty”). (ECF Doc. 37-3; Myers

Depo. Vol. I, Page ID # 458, p. 106:1-13; ECF Doc. 60-1, pp. 340-54 (Ex. 15B); Myers Aff., p.

5, ¶ 32.) Through the Factoring Agreement, Durham agreed to purchase certain of Davey Kent’s

accounts receivable. (ECF Doc. 37-3; ECF Doc. 60-1, pp. 340-54 (Ex. 15B).) Specifically,

Davey Kent factored the three machines that had been ordered by Keystone; two 525 machines

and one 725 machine. (Id. at p. 5, ¶ 34; Myers Depo. Vol. I, Page ID # 443, p. 91:3-18.) The

Factoring Agreement required Davey Kent to produce and ship the factored products within a

particular time schedule. (Myers Aff., p. 5, ¶ 33.) Davey Kent proposed a $480,000.00 line of

credit under the Factoring Agreement, but Durham agreed to provide a $350,000.00 line of

credit. (Myers Depo Vol. I, Page ID # 452-53, pp. 100:18-101:8.) Davey Kent entered the

Factoring Agreement with Keystone’s knowledge and consent. (Myers Aff., p. 5, ¶ 34.)

Keystone agreed to the Factoring Agreement based on Myers’s representations that “the

Factoring Agreement had nothing to do with Keystone and would help fund the construction of

Keystone’s machine orders.” (Slater Aff., p. 4, ¶ 10.)

5. Production Delays, Additional Orders, and Financing Proposals

While Davey Kent was starting to manufacture Keystone’s first 725 and 525 machines,

Keystone pursued a lead provided by Davey Kent and sold one of the “intended fleet machines.”

(Myers Aff., p. 4, ¶ 25.) That machine needed “significant reconfiguring to meet the client’s

needs.” (Id. at p. 4, ¶ 26.) Slater avers that Keystone had to purchase a 525 machine from

another source to meet that customer’s needs because Davey Kent did not timely deliver the

initial 525 machine. (Id. at p. 4, ¶ 12.)

Myers avers that delays in the production of the initial 525 machine resulted when

Keystone: removed the “fleet machine” from the “intended fleet, sold [it], and demanded that

Davey Kent reconfigure it”; then “unnecessarily pushed for delivery of the machine before it was

needed”; then “rashly chose to purchase a used unit from a third party”; and finally “asked

Davey Kent to reconfigure the used machine and to remove components from the previously-

ordered machine.” (Myers Aff., p. 5, ¶¶ 35-36.) Myers asserts that these actions paused the

production of the initial 525 machine, even causing production to take “steps backwards,” and

complicated the Factoring Agreement. (Id. at pp. 5-6, ¶¶ 37-38.) The first 525 machine ordered

by Keystone in August 2017 was not delivered until March 2018. (Slater Aff., p. 5, ¶ 14.)

In October 2017, David Myers emailed Slater regarding the possible use of financing to

enable Keystone to order multiple machines without large outlays of money. (ECF Doc. 60-1,

pp. 406-14 (Ex. 30); id. at pp. 426-27 (Ex. 32).) At his deposition, Myers explained that he and

Sichenzia were exploring the possibility of “putting together a leasing program that would allow

Keystone to place more orders without putting as much money upfront” using the Bank of the

Internet as a financing company. (Myers Depo. Vol I, Page ID # 495-97, pp. 143:18-145:21;

ECF Doc. 60-1, pp. 406-14 (Ex. 30).) When asked at his deposition whether Davey Kent was

“trying to push the relationship along with more orders,” Myers answered: “More orders, which

was stated at the very beginning of the relationship. That’s where we wanted to take it.” (Myers

Depo. Vol I, Page ID # 501, p. 149:16-25.)

In December 2017, David Myers emailed Slater and Walker at Keystone regarding delays

in Davey Kent’s production of machines and the need for cash and/or return on investment.

(ECF Doc. 60-2, pp. 94-95 (Ex. 37).) He indicated that “serious delays in components ha[d] had

the effect of necessarily drawing Davey out on cash” and “implore[d] Keystone to consider the

Bank of the Internet arrangement,” noting that the arrangement “could even be used with the

current machines on order” and “could include another couple of machines for the 2018

production schedule.” (Id.) He explained: “This puts necessary cash into our operation to

continue moving equipment through to completion and will reduce the amount of money that is

out of the Keystone pocket.” (Id.) In his deposition, Myers explained that Davey Kent thought

financing to get the machines built was something they should explore. (ECF Doc. 60-2 (“Myers

Depo. Vol. II”), Page ID # 835-36, pp. 220:17-221:4.) Slater explains that Keystone did not

agree to the Bank of the Internet leasing proposal “because it placed Keystone in the position to

have to finance the manufacture of machines it had already paid for.” (Slater Aff., p. 4, ¶ 11; see

also Myers Depo. Vol. II, Page ID #836, pp. 221:5-7 (agreeing that “Keystone said no”).)

Slater avers that “Myers . . . continued to promise performance and press for more

machine orders,” despite Davey Kent’s failure to timely deliver the initial 525 machine. (Slater

Aff. p. 4, ¶¶ 12-13.) “In reliance on Myers’ promises and recognizing that a larger fleet of

machines would be necessary for the relationship to work,” Slater states that “Keystone ordered

a second 725 machine and third 525 machine in January 2018 for purchase prices of $439,819.75

and $214,992.50, respectively, and made substantial initial payments for those drills.” (Id. at pp.

4-5, ¶ 13.)

6. Forbearance Agreement and Assignment of Factoring Agreement

Davey Kent entered into a forbearance agreement for the Factoring Agreement with

Durham on February 7, 2018. (Myers Aff., p. 6, ¶ 39; ECF Doc. 58-5.) By March 2018, despite

receipt of substantial sums from Keystone, Davey Kent had still delivered only one of the

machines Keystone had ordered—the first 525, which was ordered in August 2017. (Slater Aff.,

p. 5, ¶ 14.) Because of Davey Kent’s failure to perform as promised, and to protect Keystone’s

position in relation to other creditors, Keystone purchased an assignment of the Factoring

Agreement and Myers’s personal guaranty from Durham (“Assignment Agreement”) in March

or April 2018. (Id. at p. 5, ¶ 15; ECF Doc. 37-4 (Assignment Agreement dated March 23, 2018);

Myers Aff., p. 6, ¶ 40; ECF Doc. 58-6 (April 2018 email advising of assignment to Keystone);

ECF Doc. 58-7.) Keystone paid $214,815.96 for the assignment, which it understood to be the

amount Davey Kent and Myers owed to Durham at that time. (Slater Aff., p. 5, ¶ 15.)

Keystone’s purchase of the Factoring Agreement and Guaranty made Keystone both a

customer and a creditor of Davey Kent. (Myers Aff., p. 6, ¶ 41.) At the time of the purchase,

Myers asserts that Davey Kent was in compliance with its forbearance agreement with Durham.

(Myers Aff., p. 6, ¶ 42.) After the purchase, Myers asserts that Keystone took no steps to abide

by the terms of the Factoring Agreement, “did not adhere to any obligations owed to Davey

Kent, cutoff Davey Kent from additional funding under the factoring agreement (despite its

admission that Davey Kent had not exhausted the line of credit), and failed to return or credit to

Davey Kent any of the reserve holdbacks under the agreement.” (Id. at p. 6, ¶¶ 43-44.)

7. Termination of Contract

On January 31, 2019, Keystone terminated its Distributorship Agreement with Davey

Kent. (Slater Aff., p. 5, ¶ 15; ECF Doc. 59-2, pp. 7-8.) Pursuant to that agreement, Davey Kent

had delivered the first 525 machine ordered by Keystone and some parts. (Slater Aff., p. 5, ¶¶

14, 16.) But Davey Kent did not deliver the other four machines ordered by Keystone, and failed

to fully deliver various parts Keystone had ordered and paid for in advance. (Slater Aff., p. 4, ¶

11; id. at p. 5, ¶¶ 14, 16; id. at p. 6, ¶ 17.) According to Keystone’s accounting, “Keystone paid

Davey Kent and Durham $1,025,933.40 for the five machines and parts it ordered, not including

the payment to Durham for the assignment of the Factoring Agreement and Guaranty, nor the

payment for another 525 machine purchased because Davey Kent did not timely deliver.” (Id. at

p. 5, ¶ 16; ECF Doc. 59-2, pp. 9-11 (Ex. 2).)

In the fall of 2019, Davey Kent agreed to sell the initial 725 machine that had been

ordered by Keystone to Malcolm Drilling, who paid approximately $180,000.00 towards a

purchase price of approximately $450,000.00, but later canceled the order when Davey Kent

could not timely make delivery. (Myers Depo. Vol. II, Page ID # 801, p. 186:15-22; id. at Page

ID # 806-08, 191:12-193:16; id. at Page ID # 809-14, 194:23-199:7.) Davey Kent ultimately

sold and delivered the same 725 machine to Michels for $453,000.00, in September 2019 or

2020. (Id. at Page ID # 814-15, pp. 199:8-200:21.)

C. Keystone’s Claims Against Myers

Keystone’s claims against Myers are set forth in Counts Four and Six of the Amended

Complaint. (ECF Doc. 37, pp. 8-10, 11-12.) All six counts in the Amended Complaint also

include allegations and seek judgment against Davey Kent (ECF Doc. 37), but those claims are

stayed based on Davey Kent’s “Notice of Bankruptcy Filing” (ECF Doc. 17, p. 3). Thus, the

only claims presently before this Court are the claims asserted against Myers individually.

1. Count Four – Breach of Factoring Agreement and Guaranty

In Count Four, Keystone alleges that Myers signed a Guaranty of Payment as part of the

Factoring Agreement, which he breached when Davey Kent failed to pay Durham $214,815.06

due under the Factoring Agreement after Keystone made a payment in that same amount to

Davey Kent. (ECF Doc. 37, pp. 8-10, ¶¶ 43-51.) Keystone seeks judgment in its favor and

against Myers in the amount $214,815.96, plus attorney’s fees and disbursements, costs,

statutory interest, and any other relief that the Court deems just and proper. (Id. at p. 10.)

2. Count Six – Fraud

In Count Six, Keystone alleges that Myers made “fraudulent misrepresentations to

Keystone to induce Keystone to purchase drills and pay money for them.” (ECF Doc. 37, p. 11,

¶ 57.) Keystone further alleges that “Myers viewed Keystone as a source of funds to keep their

business afloat” and made knowing misrepresentations “with the intent of misleading Keystone

into paying money for drills Davey Kent knew it would not deliver.” (Id. at p. 11, ¶ 63.)

Keystone alleges that it justifiably relied on misrepresentations by Myers and suffered resulting

damage in the amount $622,606.68, asserting that Myers is “liable in his personal capacity

because he derived a personal benefit from defrauding Keystone” and noting that Myers

“guaranteed performance under the Factoring Agreement and it was in his personal interest to

induce Keystone to keep paying Davey Kent, as the Keystone receivables were the subject of the

Factoring Agreement and the collateral that secured the line of credit from Durham.” (ECF Doc.

37, p. 12, ¶ 65.) Keystone further alleges that Myers’s fraud “was willful, wanton, malicious and

spiteful,” and therefore entitles Keystone to collect punitive damages and attorney’s fees. (Id. at

p. 12, ¶ 66.) Keystone seeks judgment in its favor and against Myers in the amount of

$622,606.68, punitive damages and attorney’s fees, costs, statutory interest, and any other relief

that the Court deems just and proper. (ECF Doc. 37, p. 12.)

II. Summary Judgment Standard of Review

Rule 56 of the Federal Rules of Civil Procedure provides that “[t]he court shall grant

summary judgment if the movant shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56. The movant

“bears the initial responsibility of informing the district court of the basis for its motion, and

identifying those portions of the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, which it believes demonstrate the absence

of a genuine issue of material fact.” Celotex Corp. v. Catrett¸ 477 U.S. 317, 323 (1986) (internal

quotations omitted).

After the moving party has carried its initial burden to show that there are no genuine

issues of material fact in dispute, the burden shifts to the non-moving party. Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986). “Inferences to be drawn from

the underlying facts must be viewed in the light most favorable to the party opposing the

motion.” Id. at 587 (internal quotations, citations, and alterations omitted). However, the non-

moving party “must do more than simply show that there is some metaphysical doubt as to the

material facts.” Id. at 586. The non-moving party must present specific facts that demonstrate

there is a genuine issue of material fact for trial. Id. at 587. “The ‘mere possibility’ of a factual

dispute is not enough.” Mitchell v. Toledo Hosp., 964 F.2d 577, 582 (6th Cir. 1992).

“Only disputes over facts that might affect the outcome of the suit under the governing

law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986). “A genuine issue for trial exists ‘if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.’” Muncie Power Prod., Inc. v.

United Techs. Auto., Inc., 328 F.3d 870, 873 (6th Cir. 2003) (quoting Anderson, 477 U.S. at

248). Thus, for a plaintiff to avoid summary judgment, “there must be evidence on which the

jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. In determining whether

summary judgment is warranted, a judge generally asks “whether there is evidence upon which a

jury can properly proceed to find a verdict for the party producing it, upon whom the onus of

proof is imposed.” Id. (internal citations, emphasis, and bracket omitted).

III. Discussion

Although Myers states in his conclusion that both claims asserted against him in the

Amended Complaint (Counts Four and Six) “fail[] as a matter of law” (ECF Doc. 58, p. 13), his

“Law and Argument” analysis is limited to the fraud claim (Count Six) (id. at pp. 9-13). Myers’s

analysis of the guaranty claim (Count Four) is limited to a general assertion in his statement of

facts that “Keystone’s inability to establish an amount owed by Davey Kent under the factoring

agreement precludes any finding against him for personally guaranteeing a default by Davey

Kent.” (ECF Doc. 58, p. 9.) This argument is conclusory and underdeveloped, and any intended

challenge to Count Four on summary judgement is therefore deemed waived. See McPherson v.

Kelsey, 125 F.3d 989, 995–996 (6th Cir. 1997); see also Celotex Corp.¸ 477 U.S. at 323 (holding

that the party seeking summary judgment bears the initial burden of informing the Court “of the

basis for its motion, and identifying those portions of the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, which it believes

demonstrate the absence of a genuine issue of material fact”). Thus, to the extent Myers seeks

summary judgment as to Count Four, his motion is DENIED.3

In seeking summary judgment as to the fraud claim in Count Six, Myers argues: (1) that

Keystone cannot establish a genuine issue of material fact as to whether Myers made fraudulent

misrepresentations because Keystone “cannot point to any misrepresentations made by Myers”

(ECF Doc. 58, pp. 10-11; ECF Doc. 62, pp. 3-4); and (2) that Keystone “was required, and

failed, to allege and prove the elements necessary to pierce the corporate veil” (ECF Doc. 58, pp.

11-13.) The Court will address these arguments in reverse order.

A. Whether Keystone Must Pierce the Corporate Veil to Recover on its Fraud Claim

Myers argues that Keystone cannot hold him “personally liable for his statements and

actions as a representative of Davey Kent” unless it can first “establish the piercing of the

corporate veil.” (ECF Doc. 58, pp. 11-13.) Keystone responds that its fraud claim against Myers

“does not depend on veil piercing.” (ECF Doc. 59, pp. 12-13.)

3 Even if the Court did not find Myers waived his arguments for summary judgment on Count Four, Keystone

correctly observes that Myers has only challenged the amount of damages to be recovered under the claim, not the

validity of the Guaranty or Keystone’s legal right to collect under the Guaranty. (ECF Doc. 59, pp. 11-12.)

“Questions raised concerning damages are essentially questions of fact.” Ferndale Lab’ys, Inc. v. Schwarz Pharma,

Inc., 123 F. App’x 641, 648 (6th Cir. 2005) (alterations and quotations in original removed); see also Stryker Corp.

v. Ridgeway, No. 1:13-CV-1066, 2015 WL 8759220, at *14 (W.D. Mich. Dec. 14, 2015) (finding non-moving party

presented evidence sufficient to create material issue of fact for trial as to damages). Here, Keystone has submitted

evidence that the amount it seeks to recoup under the Guaranty is the amount it paid to Durham, as Slater avers:

“Keystone paid $214,815.96 for the assignment which Keystone understood to be the amount owed by Davey Kent

and Myers to Durham.” (Slater Aff., p. 5, ¶ 15.) Since the amount of damages recoverable by Keystone under the

Guaranty is a question of fact and Keystone has presented evidence of damages sufficient to preclude summary

judgment on Count Four, any argument for summary judgment as to Count Four also fails on its merits.

“Generally, an individual officer or shareholder will not be held liable for the acts or

debts of a corporation.” Prymas v. Kassai, 168 Ohio App. 3d 123, 136 (2006) (citing Belvedere

Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, 287 (1993)). But

an exception applies, and the corporate veil may be pierced, “when an individual officer

possesses: ‘(1) control over the corporation . . . so complete that the corporation had no separate

mind, will, or existence of its own, (2) control over the corporation . . . exercised in such a

manner as to commit fraud or an illegal act against the person seeking to disregard the corporate

entity, and (3) [an] injury or unjust loss resulted to the plaintiff from such control and wrong.’”

Id. (quoting Belvedere, 67 Ohio St.3d at paragraph 3 of syllabus).

Further, “Ohio law recognizes corporate officers may be liable in their individual

capacity for acts of fraud.” Mkparu v. Ohio Heart Care, Inc., 138 Ohio App. 3d 7, 27 (1999)

(citing Heritage Funding & Leasing Co. 120 Ohio App.3d 422, 430 (1997)); see also Prymas,

168 Ohio App. 3d at 136 (“There is support for the proposition that ‘[d]irectors and corporate

officers generally may be personally liable for fraud even though the corporation may be liable

also.’” (quoting Centennial Ins. Co. of N.Y. v. Vic Tanny Internatl. of Toledo, Inc., 46 Ohio App.

2d 137, 141 (1975)); Hitachi Med. Sys. Am., Inc. v. Horizon Med. Grp., Case No. 5:07CV02035,

2008 WL 11380232, *4 (N.D. Ohio October 29, 2008) (explaining that a director or corporate

officer “‘may be personally liable for fraud even though the corporation may be liable also’”)

(quoting Prymas and Centennial Ins. Co.); Baker v. Pfeifer, 940 F. Supp. 1168, 1184 (S.D. Ohio

1996) (same). “This liability extends to torts committed by or for the corporation when the

officer has participated in the wrong.” Prymas, 168 Ohio App. 3d at 136.

“‘To fasten personal liability upon a corporate officer for fraud, it must be shown that he

knew the statement was false, that he intended it to be acted upon by the parties seeking redress,

and that it was acted upon to the injury of the party.’” Hitachi Med. Sys. Am., Inc., 2008 WL

11380232, at *4 (quoting Centennial, 46 Ohio App. 2d at 141); see also Baker, 940 F. Supp. at

1184 (same). Thus, a corporate officer such as Myers may be held liable in his individual

capacity for fraud, regardless of whether the corporate veil can be pierced. Accordingly,

Myers’s argument regarding the piercing of the corporate veil is not dipositive of the fraud claim.

B. Whether Genuine Issues of Material Fact Preclude Summary Judgment in Myers’s

Favor on Plaintiff’s Fraud Claim (Count Six)

Myers argues that he is entitled to summary judgment on Count Six because Keystone

“cannot point to any misrepresentations made by Myers” and therefore cannot prove fraud.

(ECF Doc. 58, p. 11; ECF Doc. 62, pp. 3-4.) Keystone argues in response that “there is

sufficient evidence to withstand summary judgment that Myers defrauded Keystone into paying

money for machines he knew Davey Kent had no ability to deliver.” (Id. at pp. 13-15.)

To establish fraud, a plaintiff must show: “(1) a representation; (2) which is material to

the transaction at hand; (3) made falsely, with knowledge of its falsity, or with such utter

disregard as to whether it is true or false that knowledge may be inferred; (4) with the intent of

misleading another into relying upon it; (5) justifiable reliance upon the representation; and (6) a

resulting injury proximately caused by the reliance.” Hitachi Med. Sys., 2008 WL 11380232, at

*4 (citing Williams v. Aetna Fin. Co., 83 Ohio St. 3d 464, 475 (1998); ABM Farms, Inc. v.

Woods, 81 Ohio St. 3d 498, 502 (1998)). Concealment of a material fact may also support a

fraud claim, absent a fraudulent representation, where there is a duty to disclose. See Eaton

Corp. v. Angstrom Auto. Grp., LLC, 714 F. Supp. 3d 886, 907 (N.D. Ohio 2024) (citing

McCarthy v. Ameritech Pub., Inc., 763 F.3d 469, 478 (6th Cir. 2014) and Metro. Life Ins. Co. v.

Triskett Ill., Inc., 97 Ohio App.3d 228, 646 N.E.2d 528, 532 (1994)).

“A genuine issue for trial exists ‘if the evidence is such that a reasonable jury could

return a verdict for the nonmoving party.’” Muncie Power Prod., Inc., 328 F.3d at 873 (quoting

Anderson, 477 U.S. at 248). Thus, for Keystone to avoid summary judgment, “there must be

evidence on which the jury could reasonably find for . . . [Keystone].” Anderson, 477 U.S. at

252. At trial, Keystone would be required to establish the elements of fraud by clear and

convincing evidence. Navarro v. Procter & Gamble Co., 515 F. Supp. 3d 718, 754 (S.D. Ohio

2021) (citing Rapport v. Kochovski, 923 N.E.2d 1212, 1215 (2009)).

The record before this Court contains the following evidence regarding the allegedly false

and material representations4 made by Myers and relied upon by Keystone:

• Slater avers that Myers made multiple statements during the meetings leading to the

Distributorship Agreement “that Davey Kent had the personnel and money to fulfill

Keystone’s orders.” (Slater Aff., p. 3, ¶ 7.) Keystone reportedly relied on these

statements when it executed the Distributorship Agreement with Davey Kent and the

purchase orders for the initial 525 and 725 machines. (Id.)

• After Keystone’s refusal to agree to a leasing program through the Bank of the

Internet, Slater avers that Myers “continued to promise performance and press for

more machine orders.” (Id. at p. 4, ¶ 13.) Keystone reportedly relied on these

promises when it ordered a second 725 machine and third 525 machine. (Id.)

The record also contains evidence to support a finding that Keystone suffered injury resulting

from its reported reliance on Myers’s representations, as Keystone paid over $1 million toward

five machines and various parts but only received one machine and some parts. (Slater Aff., p. 5,

¶¶ 14, 16; ECF Doc. 59-2, pp. 9-11 (Ex. 2).)

4 Slater also avers that Myers “did not disclose to Keystone that he and Davey Kent were in financial difficulty” and

“did not disclose that he was being advised by a convicted felon, Michael Sichenzia[.]” (Id. at p. 3, ¶ 9.) Keystone

reportedly would not have signed the Distributorship Agreement, placed the purchase orders, or done business with

Myers and Davey Kent if it knew that Myers and Davey Kent were in financial difficulty and that Myers was being

advised by Sichenzia. (Id. at p. 4, ¶ 9.) Because Kestone has not argued or otherwise demonstrated that there was a

duty to disclose, and because the present motion can be resolved without addressing the issue, the Court will not

consider whether the asserted failure to disclose the above facts is sufficient to support Keystone’s fraud claim.

Although Myers does not further develop his assertion that “Keystone cannot point to any

misrepresentations made by Myers” in the law and argument section of his brief (ECF Doc. 58,

p. 11), he does make the following argument in the factual background section of his brief:

When the Keystone-designated representative was asked about specific

representations it alleges were made by Myers, he could not identify any. He merely

identified generally that Davey Kent promised it could manufacture drilling

machines and failed to do so. Further, he consistently used communications from

individuals who were not Myers to support that claim. Moreover, nearly all the

alleged communications between Davey Kent (or Myers) and Keystone occurred

after the parties consummated their distributorship agreement and after Keystone

had ordered drilling machines from Davey Kent.

(Id. at p. 9 (emphasis in original) (citations omitted).)

Unfortunately, none of Myers’s above assertions regarding the relevant deposition

testimony are supported by admissible evidence in the record before this Court. The assertions

are all allegedly based on a deposition transcript that Myers said he would “supplement[] upon

receipt.” (Id.) But Myers did not file a copy of the deposition transcript or supplement his

arguments with citations to that transcript, although Keystone filed two deposition transcripts in

support of its brief in opposition (ECF Doc. 60) and Myers subsequently submitted a reply brief

(ECF Doc. 62). As there is no admissible evidence before the Court to support Myers’s

assertions regarding the contents of Slater’s deposition testimony, there is no evidence in the

record to undermine the averments in the Slater affidavit regarding Myers’s alleged

misrepresentations. See Raimey v. City of Niles, 676 F. Supp. 3d 547, 566 (N.D. Ohio 2022),

aff'd sub nom. Raimey v. City of Niles, Ohio, 77 F.4th 441 (6th Cir. 2023) (“A party asserting that

a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular

parts of materials in the record...; or (B) showing that the materials cited do not establish the

absence or presence of a genuine dispute, or that an adverse party cannot produce admissible

evidence to support the fact.”) (quoting Fed. R. Civ. P. 56(c)(1)).

Based on the evidence discussed above, the Court finds Keystone has presented sufficient

evidence to support a jury finding that Myers made representations that were material to the

transactions at hand, that Keystone justifiably relied on those representations, and that Keystone

suffered injury as a result. That leaves two questions remaining under Ohio’s fraud standard: (1)

whether the representations were made falsely, with knowledge of their falsity, or with such utter

disregard as to whether they are true or false that knowledge may be inferred; and (2) whether

the representations were made with the intent to mislead another into relying upon them. See

Williams, 83 Ohio St. 3d at 475; ABM Farms, 81 Ohio St. 3d at 502. Because evidence of intent

is difficult to obtain, “courts may infer fraudulent intent from the facts and circumstances

surrounding the transaction and the relationship of the parties.” Hitachi Med. Sys., 2008 WL

11380232, at *8 (citing Stein v. Brown, 18 Ohio St. 3d 305, 308-09 (1985)).

Keystone argues that the following evidence is sufficient to support a jury’s finding that

Myers knew Davey Kent did not have the ability to perform under the Distributorship Agreement

and purchase orders when he represented that Davey Kent was able to perform, and that Myers

intended for Keystone to rely on those misrepresentations:

• “Myers almost immediately turned to Sichenzia after execution of the

[Distributorship Agreement] and the initial purchase orders for help in finding the

money to meet the obligations to Keystone” (ECF Doc. 59, p. 14 (citing Myers Depo.

Vol. I, Page ID # 437-38, pp. 85:24-86:2 (“We felt what we needed to do was to find

ways to accelerate cash in the company to help us perform on our commitments to

Keystone.”); ECF Doc. 60-1, pp. 277-98 (Exs. 8A-8E));

• “Myers and Davey Kent apparently did not have the assets to secure traditional

financing so Myers and Sichenzia contracted to Durham [to] factor loans against

Keystone’s orders” (ECF Doc. 59, p. 14; see ECF Doc. 37-3);

• Even though the Factoring Agreement with Durham already “put Keystone in the

uncomfortable position of having the machines it paid for as the means to generate

the cash to build them,” Myers and Sichenzia later proposed a “[Bank of the Internet]

leasing plan which would have left Keystone even more exposed” (ECF Doc. 59, p.

14 (citing ECF Doc. 60-1, pp. 415-25 (Ex. 31); Slater Aff. p. 4, ¶ 11 (“Keystone

refused [the leasing plan] because it placed Keystone in the position to have to

finance the manufacture of machines it had already paid for.”);

• “Despite the receipt of over a million dollars of Keystone’s money and the advances

from Durham, Davey Kent still could not perform beyond the initial 525 machine

delivered five months late and some parts” (ECF Doc. 59, p. 14); and

• “Myers’ fraudulent intent . . . is perhaps best demonstrated by the triple sale of the

initial 725 machine Keystone fully paid for but never received” (ECF Doc. 59, p. 15

(citing Slater Aff., p. 6, ¶ 17; Myers Depo. Vol. II, Page ID # 810, p. 195:5-15; id. at

Page ID # 814, p. 199:1-4, 20-24; id. at Page ID #815, p. 200:17-21).

Myers argues that the above evidence is insufficient to defeat summary judgment

because: (1) there is no evidence that Sichenzia was involved in any fraud relating to Keystone,

and the evidence shows instead that “Sichenzia was merely involved in obtaining financing

which Davey Kent hoped would provide it additional liquidity to speed up its drill manufacturing

operation” (ECF doc. 62, p. 3); (2) the Myers affidavit provides “evidence that Myers did not

personally make any misrepresentation necessary to satisfy an essential element of a fraud

claim” since “Keystone barely spoke with Myers prior to consummating its deal with Davey

Kent and prior to submitting its orders” (id. at pp. 3-4); and (3) “[n]othing in the Davey Kent-

Keystone relationship prohibited Davey Kent from financing its operations” and “[t]here is

nothing unusual about a manufacturer having lines of credit from which to draw” (id. at 4-5).

As to the first argument—that Sichenzia’s help in seeking financing for Davey Kent does

not create a genuine issue of fact as to whether Myers committed fraud—the Court finds that the

evidence in the present record regarding Myers’s interactions with Sichenzia in seeking various

forms of financing to fund the construction of Keystone’s machines could reasonably factor into

a jury’s determination that Myers made knowing misrepresentations when he said Davey Kent

had the financial ability to perform on the Distributorship Agreement and purchase orders.

For example, Myers emailed Sichenzia about using the new relationship with Keystone to

secure financing through a factoring agreement just days after the Distributorship Agreement

was executed and Keystone made its first 30% deposits on two purchase orders (ECF Doc. 60-1,

pp. 277-98 (Exs. 8A-8E)), with Myers testifying that his purpose was to “find ways to accelerate

cash in the company to help [them] perform on their commitments to Keystone” (Myers Depo.

Vol. I, Page ID # 437-39, pp. 85:9-87:6). A jury could reasonably infer from the timing of the

communications and the nature of the financing that Myers knew his prior statements during

contract discussions “that Davey Kent had the personnel and money to fulfill Keystone’s orders”

(Slater Aff., p. 3, ¶ 7) were false, and intended that Keystone rely on those statements.

Further evidence indicates that Myers later worked with Sichenzia to propose a Bank of

the Internet lease agreement that would finance not only new machine orders, but also previously

ordered machines for which Keystone had already paid, and which had already been used to

generate financing through the Factoring Agreement. (Myers Depo. Vol. I, Page ID # 495-97,

pp. 143:18-145:21; id. at Page ID #501, p. 149:16-25; ECF Doc. 60-1, pp. 406-14 (Ex. 30); ECF

Doc. 60-2, pp. 94-95 (Ex. 37) (noting the proposed Bank of the Internet arrangement “could even

be used with the current machines on order”).) Given that Keystone had already made payments

toward the existing orders, and those orders had also been used to generate additional financing

through the Factoring Agreement, Davey Kent’s new request that Keystone enter into a Bank of

the Internet leasing arrangement that “could even be used with the current machines on order,”

i.e., to obtain further financing based on the same orders, could support a reasonable inference by

a jury that Myers knew Davey Kent lacked the financial wherewithal to perform on additional

purchase orders when he reportedly “continued to promise performance and press for more

machine orders.” (Id. at p. 4, ¶ 13.)

For the reasons discussed above, the Court finds that the evidence concerning Myers’s

coordination with Sichenzia to seek financing intended to fund Davey Kent’s performance under

the Distributorship Agreement and purchase orders could support a reasonable inference by a

jury that Myers knowingly misrepresented Davey Kent’s financial viability with the intent to

influence Keystone’s decision to enter the relevant business dealings.

Myers’s second argument—that his affidavit proves he did not personally make any of

the alleged misrepresentations—is not consistent with the admissible evidence in the record

before this Court. In his affidavit, Myers admits to being introduced to Keystone representatives

as Davey Kent’s president when they visited Davey Kent’s facilities in Kent, Ohio (Myers Aff.,

p. 3, ¶ 14), but notes that “David Myers primarily dealt with Keystone, not me” (id. at ¶ 16).

Although these attestations may support a claim that Myers had minimal communications with

representatives of Keystone, the affidavit does not affirmatively prove that Myers did not have

any communications with Keystone representatives. Conversely, the Court finds Keystone has

offered sufficient evidence to create a genuine issue of material fact as to whether Myers

repeatedly stated during the meetings leading to the execution of the Distributorship Agreement

“that Davey Kent had the personnel and money to fulfill Keystone’s orders” (Slater Aff., p. 3, ¶

7) and/or “continued to promise performance and press for more machine orders” after Keystone

refused to agree to a leasing program through the Bank of the Internet (id. at p. 4, ¶ 13).5

As to Myers’s final argument—that there is nothing unusual about a manufacturer having

lines of credit, and that nothing in the Davey Kent / Keystone relationship prohibited Davey Kent

from financing its operations—is beside the point. Because intent is difficult to demonstrate

using evidence, “courts may infer fraudulent intent from the facts and circumstances surrounding

the transaction and the relationship of the parties.” Hitachi Med. Sys., 2008 WL 11380232, at *8

5 As discussed above, Myers’s descriptions of testimony that was reportedly elicited in Slater’s deposition to

undermine the statements in his affidavit cannot be considered in support of the pending motion because Myers

failed to submit admissible evidence—such as the relevant deposition transcript—to support his arguments.

(citing Stein, 18 Ohio St. 3d at 308–09). Here, the facts and circumstances highlighted by

Keystone and supported by admissible evidence in the record could reasonably support a finding

that Myers: represented during initial contract negotiations that Davey Kent had the personnel

and money to fulfill Keystone’s initial purchase orders; but then, only days after the contract was

signed and Keystone’s initial payments were made, sought to leverage those purchase orders to

finance Davey Kent’s performance on the orders; several months later, having still not performed

on the orders, sought additional financing to leverage the same orders to—again—finance Davey

Kent’s performance on the same orders; after Keystone rejected the additional financing

arrangement, continued to promise performance and press for more machine purchase orders;

ultimately failed to deliver four out of five of the ordered machines, despite receiving payments

in excess of $1 million; and later sold a 725 machine that Keystone had paid for in full to two

unrelated companies, receiving additional cash payments in excess of $600,000, instead of

delivering the machine to Keystone. The Court finds that a juror could reasonably infer from

these facts and circumstances that Myer knew Davey Kent did not have the personnel and money

necessary to perform on the Distributorship Agreement and/or purchase orders but represented to

Keystone that Davey Kent had the financial wherewithal to perform with the intent to induce

Keystone to rely on the representations and make payments toward the purchase orders.

For the reasons discussed above, the Court finds that Keystone has presented sufficient

evidence for a jury to reasonably conclude that Myers knowingly misrepresented Davey Kent’s

ability to perform under the terms of the Distributorship Agreement and purchase orders with the

intent to induce Keystone to pay money to purchase machines that Myers knew Davey Kent did

not have the financial ability to manufacture and deliver as agreed, and that Keystone acted upon

those representations to its detriment. Thus, Keystone has presented material questions of fact

upon which a reasonable jury could return a verdict for Keystone on the fraud claim set forth in

Count Six of the Amended Complaint.

IV. Conclusion

For the reasons set forth above, the Court DENIES Defendant J. Thomas Myers II’s

Motion (ECF Doc. 58).

November 7, 2024

/s/Amanda M. Knapp

AMANDA M. KNAPP

United States Magistrate Judge